Has the Whisky Trade War Begun?

Canada and the European Union are planning retaliatory tariffs on imports of Bourbon and other American whiskies after last month’s move by the Trump Administration to impose tariffs on their steel and aluminum exports to the United States. That sets the stage for what could potentially become a full-fledged trade war with whisky as a weapon, and whisky makers are worried that the U.S. will respond with tariffs against their whiskies.

In the above clip, Catoctin Creek co-founder Scott Harris talks to Fox Business about how the European Union’s retaliatory tariffs have offset the company’s gains from President Trump’s tax cuts. Catoctin Creek is a virginia based distilling company.

Bourbon has been hit with a 25% tariff in retaliation for the tariffs the U.S. imposed on steel and aluminum imports. In this case, the E.U. was looking to make a statement just as much political as economic. Bourbon is a crucially important industry in Senate majority leader Mitch McConnell’s state of Kentucky. Meanwhile, the Distilled Spirits Council, the industry lobbying body in the U.S., say that U.S. whiskey exports to the E.U. are valued at $667 million.

However, it’s not just the E.U. that’s been clamping down on American whiskey and sending a message to American political leadership. It’s happening elsewhere in the world, too. China levied a 25% tariff against hundreds of American products in April, American whiskey among them. China’s international drinks market is estimated to be worth over $600 million dollars. Although mostly dominated by Scotch whisky imports, the U.S. whiskey market in China is worth $8.9 million, a 1,200% increase from almost $1 million in 2001. It will now be much harder for this market to keep growing.

U.S. neighbors Mexico and Canada are also introducing whiskey trade barriers. A 25% tariff introduced in Mexico on American whiskey three weeks ago led to an 8% drop in shares of Jack Daniel's owner, Brown Forman. In 2017, whiskey imports shipped into Canada were worth almost $50 million. This market faces a new threat when Canada’s retaliatory tariffs on $12.5 billion of American imports takes effect on July 1, with whisky facing an additional 10% tariff.

These tariffs are striking at a time when American whiskey exports have been booming for American brown spirits, so it’s unlikely American whiskey producers will remain optimistic over this next year.

Amid the danger for American whiskey exports, a potential whiskey trade opportunity lies in the United Kingdom’s upcoming exit from the E.U. A recently leaked paper revealed that the U.K. could potentially agree to reduce the regulations required for American whiskey to be sold in the U.K in a potential trade agreement, as the British government desperately searches for post-Brexit trade partners. However, this is still a hypothetical scenario.

In any case, the American whiskey industry is intensely lobbying the U.S. government to find a solution that will ease the pain caused by the international tariffs. In a letter hand-delivered to U.S. Commerce Secretary Wilbur Ross, the Distilled Spirits Council wrote: “Over the past two decades, U.S. spirits exports have increased from $575 million in 1997 to $1.64 billion in 2017, a rise of 185 percent," the Council wrote. "The imposition of these tariffs by our major trading partners threatens to seriously impede export progress that has benefited our sector and created jobs across the country.”

From the international response to the U.S. steel and aluminum tariffs, it has become clear that whiskey is in the crosshairs of foreign governments as the trade war escalates. What effect these tariffs will have on the 1.5 million jobs that rely on the whiskey industry, and on the upcoming midterm elections, remains to be seen. Meanwhile, bourbon lovers around the world will be feeling the effects of these tariffs as prices rise overnight.

Source: Forbes, Whisky Cast